Whats the actual file size?

I don't beleive this is a windows specific issue. Because disks are allocated in blocks, the file will potentially take up more space on disk than it's actual size if the file size is not an exact mulitple of the disks block size.

Consider:

File         |------3.4k------|   |-------------4.1k--------| 
Disk Blocks  |--------4k----------|--------4k----------|--------4k----------|

Files on disk must be aligned to the allocated blocks (they must start where a block starts) so for example, if a files actual size was 3.4k, and disk block size was 4k, the files size on disk would be 4k because even though there are only 3.4k of data in the file, it effectively is taking up 4k on the disk because you can't use the remainder of that block for anything.

Size is the actual number of bytes in the file.

Size on disk is the number of bytes the file takes up on disk. This is generally a higher number because disk space can only be allocated in blocks, so there will be extra slack space reserved on disk at the end of the file to fill up the last block. But this slack space is not actually part of the file.

Before flaming Windows about wasting that space on the disk, you should understand a bit about how pretty much all filesystems manage space on hard disks.

The "smallest" addressable lump of space on a HDD is a sector (often 512 bytes), and you cannot read or write smaller than that. If you want to write one byte in a sector, you must read the sector, modify the byte, and write the sector back. That's how the physics/electronics work. A "block" is usually one or more sectors, and represents the smallest chunk of space that the filesystem will allocate for a file. Old DOS "FAT-Based" filesystems increased the block size as disk size increased.

For many reasons, filesystems prefer NOT to have multiple files sharing the same sector. Imagine if you want to make a file a little longer - that "wasted space" at the end of the sector can be used, before additional sectors are allocated to make the file bigger.

And, while it's theoretically possible to have a filesystem which can allocate disk files on a per byte (or even, per-bit) basis, the amount of housekeeping storage on disk to keep track of this would rocket and probably outweigh any advantages you might have gained. And the performance would likely by very poor...

Windows has always calculated the file size correctly when showing in larger units (1KB = 1,024B, etc).

Size is the actual file size, while size on disk is the actual size taken on the hard drive. Since hard drives are broken up into blocks, you have to consume a block completely. I would be like having a bucket that holds 4L and you have 5L of water, you would need two buckets to hold the water.

Size. Size-on-disk is the number of blocks * blocksize required to store the file on the drive.